Economic turmoil as war rattles world markets

WAR-fuelled stock market increases stalled and the US dollar slid after US President George W Bush cautioned the war with Iraq "could be longer and more difficult than some predict".

Irish shares fell as the ISEQ ended a six-day winning streak, while the FTSE remained flat, European stocks ended a five-day upward swing and the US dollar dropped.

Irish Life & Permanent Plc fell after European rival Allianz AG announced plans to sell as much as 5 billion in shares and bonds. Irish Continental Group Plc gained on market expectations that it will benefit if oil prices fall.

The benchmark ISEQ Overall Index fell 5.84 points, or 0.2%, to 3972.48, its first decline since March 12. Fifteen shares advanced, while another 15 declined and 25 were unchanged.

The dollar had its biggest drop against the euro in more than a week. The decline trimmed the dollar's rally over the past seven days to about 4%, in its biggest slide since March 10. It also dropped to 120.11 yen, from 120.43.

The Dow Jones Stoxx 50 Index shed 0.5% to 2225.34, as of 5.30pm in London. The Stoxx 600 lost 0.6% to 186.23, The drop ending five straight days of gains which had led to the biggest advances for the indexes since they began in 1987.

A lengthy war could cause a recession worldwide, European Central Bank council member Nout Wellink said in an interview with Het Financieele Dagblad. A long conflict would hit world economic growth by as much as 2%, he said.

Benchmark indexes declined in 12 of the 17 Western European markets. Germany's DAX Index slipped 0.7% and France's CAC 40 dropped 1.5%.

The European Central Bank said it wasn't possible to assess the effects of the conflict on the region's economy, though it is prepared to support financial markets in any potential crisis.

The FTSE 100 finished nearly flat, up just 0.3 points at 3,765.7, and extending its winning streak to six sessions. The index has risen 15% over the past week but analysts were sceptical about a further moves upwards.

"We've held up fairly well all along, but at some point you start to lose the momentum," said Nigel Cobby, managing director of European equities at JP Morgan. "Also, every day this war goes on there's still the risk that we come in tomorrow morning and something's gone wrong."

On Wall Street, stocks trimmed steep losses late on Thursday morning, as rumours swirled that Saddam Hussein may have been hit in an initial US strike.

However, Cantor Fitzgerald trader Craig Cummins said that these were unconfirmed and that "no one at the White House is saying anything".